The Repairs Clause

Historical background

The European Commission already issued 3 legislative proposals (1993, 1997 and 2004) aiming at harmonising design law within the European Union.Each time ECAR has endorsed and supported these legislative procedures and has vigorously defended the liberalisation of the visible spare parts market by organising meetings with and talking to Members of the European Parliament, with Commission’s officials, with representatives of the Member States in Brussels and with the national administrations.

In May 2014, however, despite that fact that the Commission and the European Parliament majority had fully supported the Repairs Clause, the European Commission withdrew its proposal to introduce a Europe-wide Repairs Clause in the Design Directive due to the 10 years of discussion, delay, postponement and blockage, from some Member States in the Council of Ministers (France, Germany, Sweden, Czech Republic, Romania and Slovenia).

The consequence of this withdrawal today is a non-harmonised internal market for automotive visible spare parts, a patchwork of conflicting national laws. Member States which do not have a repairs clause in their design law will continue to allow protection and enforcement of the vehicle manufacturers’ design rights on visible must match parts against producers or related spare parts. On the other hand, in Member States with a repairs clause in their design law, the consumers can choose between competing suppliers of parts and repair services – the vehicle manufacturer network and the independent aftermarket, at prices kept low by competition.

Further to the withdrawal of its proposal, the European Commission announced in its Work Program for 2014 the intention to reassess this issue through the on-going general review of the European design protection’s regime.

As a first step of this analysis, the Commission entrusted the consultancy Europe Economics with the preparation of an economic study on industrial designs, which builds on the results of an online questionnaire and interviews conducted among stakeholders. The conclusion of the authors is clear and again fully supports the ECAR position:a European-wide repairs clause should be introduced and design protection should not be extended to visible automotive spare parts.

As a second step of the review, the Commission ordered a legal study to a consortium with the aim of, inter alia, examining whether harmonisation has facilitated the system of design protection in the internal market and whether further harmonisation is required and aiming also at determining whether there is a need for further harmonisation of national legislation which would bring benefits to users and consumers.
The Legal Study concluded in June 2016 that
a) “legislative amendment at the EU level appears necessary” and that b) there is not a more acceptable solution on the horizon than the Repairs Clause proposal of the Commission which “commanded considerable support and has the merits of harmonising European and national design protection”.

The Commission will now review these studies and assess how best to address the issues highlighted by them. Meanwhile, the competitiveness of thousands of SMEs is still hampered by the application of design protection rights on automotive visible spare parts in the aftermarket in multiple Member States and by the lack of European legal harmonisation, ultimately depriving European consumers from prices flowing from the benefits of free and fair competition.

ECAR’s argumentation

Purpose of design protection

The purpose of design law is to protect the appearance of the product, not the product itself. If we consider the car market: protecting the design of a car does not hamper or exclude competition in new cars. Consumers can still choose between many different cars, even if all of them are design-protected.

Design protection therefore is not meant to grant a product monopoly. Design law intends to foster product competition by innovation.

Spare parts are a very different market. To repair the “outer skin” of a car and thus restore its original appearance, the spare parts must look exactly like the component to be replaced (it is a “must match” spare part). No design alternatives are possible.
Therefore, if design protection is extended to “must-match” spare parts, competition in the market of visible spare parts is completely eliminated for all parts registered for design protection. Unlike its effects on the market for new cars, applying design protection to “must-match” spare parts gives the vehicle manufacturer a product monopoly on parts registered for design protection; deprives vehicle owners from any choice and makes them captive consumers.Extending design protection to visible spare parts is an abuse of the rule’s intent: instead of fostering competition, it leads to product monopoly and to monopoly pricing!

Legislation dictates safety – Consumer choice dictates quality

Vehicle manufacturers claim that design protection is needed to protect consumers against unsafe or inferior spare parts. They claim that having vehicle manufacturers as the sole suppliers of spare parts is the only way to procure spare parts that are safe and of good quality.
Design protection only protects the outside appearance of a product, not the product itself. Its technical characteristics are not taken into account. Arguing that design protection is a safety issue is a blatant misuse of its intended purpose.
Since safety is an essential public good, an extensive system exists to ensure that all safety-relevant goods on sale in the European Union are indeed safe. The safety of vehicle spare parts is ensured by a number of rigorous EU-wide laws, regulations and standards that apply to ALL producers. Therefore, parts and replacement parts that are considered to be safety-critical can only be marketed if they have passed a government-mandated type-approval procedure and if the type-approval mark granted upon a successful testing procedure is affixed to each unit sold.
Unlike safety, quality is not a public good, but a private one. Quality does not need to be regulated by an external authority: the play of competitive market is enough. Quality is regulated by the power of consumers.

European jobs threatened by monopolies, boosted by the repairs Clause

In an effort to reduce their costs, vehicle manufacturers already import a significant percentage of their parts requirements from low-cost countries. This has the ongoing effect of eliminating thousands of European jobs. Design protection, by legally sustaining this mechanism, would accelerate the on-going relocation of jobs to non-EU countries. The result – fewer jobs in Europe.
The Repairs Clause, to the contrary, helps keep jobs in the European Union. It saves existing production jobs from being swept away, it encourages the creation of new jobs in the European Union. Indeed, with a Repairs Clause to guarantee their right to compete, Europe’s independent spare parts producers can a) supply spare parts for Japanese, Korean, US and other cars imported into the EU and thus generate additional EU jobs; b) compete with the spare parts imports of EU vehicle manufacturers and thus cushion the blow of automotive off-shoring or even bring jobs back into the EU; and c) manufacture spare parts in the EU for exports markets, thus again generating new EU jobs.

Consumers shouldn’t have to pay twice

When a consumer buys a new car, he chooses from among competing designs. He pays for his choice voluntarily. The vehicle manufacturer’s design premium is not a guarantee: it is a reward, obtained in open competition against other designs.
Spare parts are fundamentally different. No design alternative and thus no competition is possible. Why should the owner of the car be forced to pay for this design more than once whenever he needs a body-related spare part? Even worse: the price paid the second time would be set at monopolists’ sole discretion, permitting price abuse against consumers.

Conclusion

For all these reasons, it is clear that the Repairs Clause is the only acceptable compromise solution between a system allowing full protection of visible spare parts and a system which does not allow the protection of the design of visible must match parts (even on the primary market) as it was the case in Italy and in the UK before the introduction of the Repairs Clause in these countries.

For 23 years, ECAR has tried to convince the Commission (successfully), the European Parliament (successfully) and national Member States (successfully in 11 countries so far) that the Repairs Clause and the principle of freedom of repair are legally, economically and competitively sound.

The current effects of the absence of a real EU Internal Market on the thousands of independent aftermarket SMEs, which are at the heart of our local economic base, are extremely serious. ECAR believes that there is a real need to reshape EU’s industrial automotive policy and better combine the protection of industrial property rights with the consequences that such protection may have on EU independent aftermarket SMEs if used beyond its essential purposes.

ECAR will continue its efforts to ensure that national and European decision makers will not allow any further delay in finding a fair and concrete solution on the use of design rights in the European Internal Market for automotive spare parts, which the Repairs Clause rightly provides.